Varun Gauba vs Punjab & Sind Bank & Ors.
2012 Latest Caselaw 3996 Del

$~15
*    IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                     Judgment delivered on 09.07.2012

+      RFA 264/2012

       VARUN GAUBA                                            ...        Appellant
                         Versus

       PUNJAB & SIND BANK & ORS.                                  ...Respondents

Advocates who appeared in this case:
For the Appellant    :      Mr. Kapil Gaur
For the Respondents  :      None.

CORAM:
HON'BLE MR. JUSTICE V.K.JAIN

                         JUDGMENT

V.K.JAIN, J. (ORAL)

1. This appeal is directed against the judgment and decree dated 3 rd March,

2012 whereby the application of the appellant for grant of leave to contest was

dismissed and a decree for recovery of Rs.5,93,099/- along with simple interest on

that amount at the rate of 9% per annum was passed against the appellant and three

others. The facts giving rise to the filing of this appeal can be summarized as

under:-

Ramesh Kumar Gupta, proprietor of New Orient Transport Company, which

was defendant No.1 in the suit and is respondent No.2 in this appeal, had a current

account with the plaintiff/respondent No.1 - Punjab & Sind Bank and in that

account, he availed overdraft facility on payment of interest at the rate of 6.5% per

annum above the Reserve Bank of India rate subject to minimum rate of 16.5% per

annum with quarterly rests. He also requested respondent No.1 bank to purchase

three cheques of Rs.1,25,000/-, Rs.1,05,000/- and Rs.1,25,000/- respectively drawn

by M/s. Quality Handloom in his favour. The cheques were purchased by the

bank and the amount was credited to the account of respondent No.2/defendant

No.1 on his assurance that the cheques were genuine and would be cleared by the

drawee on being presented. The cheques when presented by the Bank were

returned with endorsement "Refer to Drawer". There was thus a debit balance of

Rs.3,64,038.39 in the current account which defendant No.1/respondent No.2 had

with respondent No.1 bank. In August, 1989, he requested the Bank for the adhoc

loan facility to the extent of debit of Rs.3,64,038.39 in his current account and the

request was granted by the bank. He executed a promissory note for that amount.

However, he failed to regularize the current account and, therefore, was asked by

the bank to pay the amount which was debited in his account. He, however, failed

to honour the demand of the bank and then another demand notice dated

24.10.1989 was issued to him demanding a sum of Rs.3,65,473.89. He again

availed facility to the extent of Rs.3,50,376.03 in the current account and executed

promissory note dated 05.04.1992 and also executed various other documents in

favour of the bank. He agreed to pay the sum due to the bank, on demand from it,

along with interest at the rate 10.75% above the RBI rate, with a minimum of

22.75% p.a., with quarterly rests. It is alleged by the plaintiff/respondent No.1 bank

that defendant No.1/respondent No.2 also had executed and delivered a letter of

guarantee, guaranteeing the repayment of entire amount advanced to defendant

No.1/respondent No.2 with all interests and charges with continuity, till the

liability of the defendant No.1/respondent No.2 subsists. Two other defendants

created an equitable mortgage of the immovable property in favour of plaintiff

bank by depositing title deeds. Defendant No.1/respondent No.2 issued 30 cheques

of Rs.10,000/- each of their concern M/s. Sahil Golden Transport Company which

also were dishonoured when presented to the bank. A sum of Rs.5,39,099/- was

due to the plaintiff Bank at the time of filing of suit which came to be decreed by

impugned order.

2. The contention of the learned counsel for the appellant is that the document

referred as a guarantee bond by the plaintiff bank is in fact an indemnity bond. He

has contended that a suit based on indemnity bond cannot be filed under Order 37

of the Code of Civil Procedure. In support of his contention, he has relied upon the

decision of the Supreme Court in State Bank of Saurashtra vs. Ashit Shipping

Services (P) Ltd. And Another (2002) 4 SCC 736.

3. A perusal of the decision relied upon by the learned counsel for the appellant

would show that in the case of Supreme Court, the first respondent was working as

an agent for a Company for a vessel which arrived at Kandla port carrying logs of

timber. The second respondent sent a bond to the first respondent which inter alia

provided as follows:-

"1. To Indemnify you and hold harmless in respect of any liability loss or damage or whatsoever nature which you may sustain by reason of delivering the goods of M/s. Vasani Brothers, Bhavnagar in accordance with our request.

2. To pay you on demand the amount of any loss on which the Mater / agent of the vessel or any other of your services or agents whatsoever may incur as a result of delivering the goods aforesaid.

xxx xxx xxx xxx xxx xxx

6. To produce and deliver to you the Bills of lading for the above goods duly endorsed as such as documents shall have arrived.

xxx xxx xxx xxx xxx xxx We the undersigned hereby join in the above indemnity and jointly and severally guarantee due performance of the above contract and accept all the formalities expressed therein."

On the said Bond the following notation appeared with the stamp of the

Appellant Bank and the signature of their Manager:

"We the undersigned hereby join in the above indemnity and jointly and severally guarantee due performance of the above contract and accept all the formalities expressed therein."

In their application for leave to defend, the appellants before the Supreme

Court had, inter alia, contended that the suit was for recovery of the price of the

goods and the interest paid on that amount and the document in question was an

indemnity bond. It was also pleaded by them that the respondent No.1 should

prove that they had suffered a loss. They pointed out that in the plaint, the first

respondent had not averred that they had suffered any loss or damage. It was

pointed out by them that the said bond purporting to be signed by respondent

No.2 and counter-signed by the Manager of the defendant No.1 was in flagrant

violation of the bank's Procedure. In para 12 of the judgment, Supreme Court

observed that there was a dispute as to whether the document was a guarantee or

merely an Indemnity. It was further observed that since the 1st respondent termed

the document to be an indemnity, the Court was required to consider the nature

and meaning of the document. This, Supreme Court was of the view that, by

itself, necessitated granting of leave to defend. It was further observed that the

document was contrary to no other practice. The Manager of the appellant bank

had merely affixed the stamp of the Appellants and signed under a paragraph

which stated that they had joined in the indemnity. It was noted that the

Appellants had made serious allegations of fraud and collusion and had stated

that such a document did not exist in their records. The Court felt that This was

not a defence which could be characterised, as sham or illusory and therefore,

triable issues haing arisen, the application for leave to contest the suit should not

have been rejected.

4. However, in the case before this Court, the terms and conditions of the

document referred by the plaintiff bank as a guarantee and by the appellant as an

indemnity bond are altogether different. The document in question, inter alia,

reads as under:-

In consideration of your agreeing to open and/or continue, at my/our request an account or accounts in your books and/or opening a letter(s) of credit in the name of M/s. New Orient Transport Company (hereinafter called "the Customers") either in one or more of your branches in Delhi or the Head Office and Branches in New Delhi or any other branches in any part of India or or outside India, I/We Varun Gauba, S/o. Jagdev Chand, R/o. 74 BA, Shalimar Bagh, New Delhi, hereby agree and undertake to save you harmless and keep you indemnified from and against all claims, demands, losses, damage, costs, charges and expenses whatsoever you may sustain or incur in respect of all moneys already advanced and paid to such Customers and in respect of any liability incurred by you for such customers or in respect of any moneys you may at any time advance or pay to or any liability you may incur for the use or accommodation or on the credit of the Customers whether on current, overdraft, cash credit or any other account or by way of opening or continuing any new account special or otherwise or by opening letters of credit from time to time and negotiating bills thereunder or by way of discount or otherwise in respect of bills of exchange, promissory notes or other negotiable securities drawn, accepted or endorsed by such customers or otherwise howsoever together with all interest, discount, commission and other banking charges legal

and other costs, charges and expenses which may be or may become payable in connection therewith PROVIDED NEVERTHELESS that may/our liability under these presents shall not exceed in the aggregate the sum of Rs.3,50,376.03 (Rupees Three lacs fifty thousand three hundred and seventy six and paise three and interest thereon at the rate of ......... percent over Reserve Bank rate subject to a minimum of ..... percent per annum from the date on which demand for payment thereof shall have been made by you upon me/us.

My/Our liability under these presents shall remain in full force until three calendar months after I/we shall have given or sent to you notice in writing of my/our intention to discontinue and determine these presents and shall have paid to you all moneys up to the limit of my/our liability due at the expiration of such notice and in the event of my/all or any of us dying or being under any legal disability the liability of the survivors or survivor of us and of the estate(s) and executors, administrators or legal representatives of the deceased guarantor shall continue until the expiration of three calendar months notice in writing given to you by such survivor and executors administrators or legal representatives of such deceased guarantor to determine these presents and you shall be at liberty on receipt of such notice any time within the said period of three calendar months to open a fresh account or accounts for the customers and to appropriate thereto all payments subsequently made to you by such customers and not expressly appropriated by such customers to the old accounts, without in any way affecting my/our liability under these presents to the extent aforesaid.

I/We hereby consent to your making any variance that you may think fit in the terms of your contract with the principal debtor to your determining, enlarging, or varying any credit to him to your making any

composition with him or promising to give him time or not to sue him and to your parting with any security you may hold for the guarantor debt. I/We also agree that I/we shall not be discharged from my/our liability by your releasing the principal debtor or by any act or omission of yours the legal consequence of which may be to discharge the principal debtor or by any act of yours which would, but for this present provision, be inconsistent with my/our rights as sureties or by your omission to do any act which, but for this present provision, your duty to us would have required you to do. Though as between the principal debtor and ourselves I am/we are sureties only, I/we agree that as between yourselves and us, I am/we are principal debtors jointly with him and accordingly I/we shall not be entitled to any of the rights conferred on sureties by Sections 133, 134, 135, 139 and 141 of the Contract Act.

Notwithstanding anything hereinbefore contained my/our liability under these presents shall extend to all accounts of the customers whether the same are the account or accounts of such customers solely or are accounts on which such customers may become liable jointly in any manner whatsoever with company or firm or person or persons and in whatever name the same may stand and the same shall not be affected by any change in the constitution or name of the customer‟s firm or company or any change in the constitution of the Bank its successors or assigns or by its absorption in or by its amalgamation with any other Bank or Banks.

You shall also be at liberty to release or discharge any of us from the obligation of this guarantee, or to accept any composition from or make any other arrangements with any of us without thereby prejudicing or affecting your rights and remedies against the other or others of me/us."

5. On a careful analysis of the covenants contained in this document, there can

be no doubt that it is in fact a guarantee bond whereby the appellant/defendant

No.2 undertook to pay to the plaintiff/respondent No.1 bank whatever amount it

advanced to defendant No.1/respondent No.2, along with interest on that amount.

Of course, the liability of the appellant was not to exceed Rs.3,50,376.03 and the

interest on that amount at the rate agreed by the borrower. The document

specifically refers to all accounts such as current, overdraft cash, credit,

discounting bills, promissory notes etc. The liability of the appellant was to remain

in force until three months of his sending a notice to the bank expressing intention

to discontinue his obligation and determine the agreement which he had executed

with the bank. He had also undertaken to pay whatever amount was due to the

bank at the time of expiration of any such notice. The plaintiff bank was also

given liberty to make such variations as it might deem appropriate in the terms of

its contract with defendant No.1. The amount of the credit to defendant No.1 could

be enlarged or varied but that was not to discharge the appellant from his liability.

Even if the principal debtor was to be released from his liability, that was not to

release the appellant of his obligation under the agreement he executed with the

bank. In para 3 of the document, the appellant specifically stated that though as

between the principal debtor and himself, he was surety only, agreed that as

between him and the bank, he was principal debtor jointly with defendant No.1 and

accordingly shall not be entitled to any of the rights conferred on sureties of

Sections 133, 134, 135, 139 and 141 of the Contract Act. This specific term in the

document leaves no doubt that in fact the appellant had executed a guarantee bond

and not an indemnity bond with the bank and that is why he has referred to himself

as a surety qua defendant No.1. In fact, in terms of this contract with the bank, he

became the principal debtor, along with defendant No.1 in the suit. I also notice

that in the last para of the document, the document has specifically been referred as

a „guarantee‟. I therefore agree with the learned Trial Judge that this document is a

„guarantee letter‟/bond.

6. Even if it is accepted for the sake of arguments that the document, executed

by the appellant in favour of the plaintiff bank, is not a letter of guarantee, it can

certainly not be disputed that it is a written contract between him and the plaintiff

bank and a suit in which the plaintiff seeks only to recover a debt or liquidated

demand in money with or without interest arising on a written contract, can be filed

under the summary procedure prescribed in Order XXXVII of the Code of Civil

Procedure. Admittedly, the plaintiff bank had claimed only the principal sum and

the interest due to it. This is also the case of the plaintiff bank that the defendant

No.1, who was the principal borrower, had committed default in repayment of the

loan taken from the bank and that the suit amount of Rs. 5,93,909/- was due from

him. Therefore, this is a suit for recovery of a debt, with interest, and is based on a

written contract. From whatever angle it may take, it is difficult to dispute that the

suit is covered under Order XXXVII of the Code of Civil Procedure.

7. It was lastly contended by the learned counsel for the appellant that he has

disputed the correctness of the statement of accounts filed by the bank. In my

view, correctness of the statement of accounts pertaining to the loan taken by

defendant No.1 (the principal borrower), can be challenged by the principal debtor

and not by the guarantor. In any case, there is no prima facie material in record to

indicate any inaccuracy in the statement of account.

As regards the rate of interest, I find that the borrower had, while executing

the promissory note, agreed to pay interest at the rate 7.5% above the RBI rate,

with a minimum of 22.5% p.a. This is not the case of the appellant that interest has

been charged at a higher rate.

8. For the reasons stated hereinabove, I find no merit in the appeal and the

same is, therefore, dismissed. There shall be no order as to costs.

The appeal stands disposed of accordingly.

V.K. JAIN, J

JULY 09, 2012 'sn'